CBOT Calls For Fair And Balanced Regulatory Treatment

In testimony yesterday before the U.S. Senate Agriculture Committee, leaders from the Chicago Board of Trade said Congress must "move quickly to restructure federal regulation to enable all derivatives markets to benefit from the forces of full and fair competition." Testifying before the Senate panel was CBOT Chairman David P. Brennan, accompanied by CBOT President & CEO Thomas R. Donovan. The hearing centered on a report issued late last year by the President's Working Group On Financial Markets that addressed the regulatory environment for the over-the-counter derivatives markets and the Commodity Exchange Act (CEA). Brennan said, "As we say often in the context of restructuring the Chicago Board of Trade, the status quo is not an option. Regulatory modernization for those transactions subject to the CEA must be codified to provide for oversight, not micromanagement, designed to allow our markets to compete fairly with the OTC and other types of markets that offer exchange-like products." Donovan said, "Congress must repeal all barriers to competition, like the Shad-Johnson product restrictions, and insist on fundamental fairness. Every day as technology changes, derivatives markets change. The Working Group report is a good starting point for delineating a framework to provide a comprehensive and even-handed approach to meaningful, lasting regulatory reform. I particularly want to commend [Commodity Futures Trading Commission] Chairman Rainer for his leadership and willingness to pursue reasonable and fair regulation for exchanges." The CBOT leaders endorsed the need to reform the CEA and the Working Group's three-part framework of 1) Giving legal certainty to OTC derivatives; 2) Transforming the CFTC into an oversight agency for execution and clearing facilities; and 3) Reconsidering the single stock futures ban in Shad-Johnson and its competitive implications. Brennan testified that the CBOT is just asking for a fair chance to compete. "We believe in open markets and fair competition," he said. "To us, similar products traded in similar circumstances should have similar government oversight. That means privately negotiated transactions may be excluded, but all public execution facilities should be treated alike. That is our 'golden' rule for fair competition. Today, that rule is not being met." Brennan and Donovan expressed their eagerness to help bring to closure the important issues raised by the Working Group and they will work closely with Congress and regulators on legislation to reauthorize the CFTC and rewrite the CEA.